Alteryx- Interesting Bearish Take

Investment Analysis Clubs Saul’s Investing Discussions
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https://openviewpartners.com/blog/capital-markets-roundup-5-…

There are a few ideas and sublinks in this article I need to unpack…that’s going to be a problem since it’s Mother’s Day weekend and it’s priority family time! But I wanted to go ahead and post it to see what others on the board made of it. I haven’t been around the SaaS scene for too long, so I missed the whole ASC 605 to 606 transition. From the posted link:

This week Alteryx reported growth will drop from 43% YoY to a mere 12.5% (vs. 30% original estimate) in Q2 because “a slowdown in new deal activity, higher expected churn, and more flexible payment terms—all of which is amplified by the upfront revenue recognition for term licenses under ASC 606” (Goldman Sachs).

ASC 606 is pulling valuation forward and misleading investors—on top of the billings confusion noted by Barclays! A 43% growth business commands the ~14x NTM multiple Alteryx is still trading at. A 12.5% grower should trade for 40% or more less than that. But alas it isn’t just accounting creating a trap. Hubspot reported increased headwinds and worsening churn, so reduced revenue guidance for the year. In response, Goldman raised their 2021 revenue and their stock price targets!

Why? Positioning. Whether through use of technically above bar accounting or good old fashioned selling of a story, positioning matters. Shopify’s Head of IR said “investors live in an entirely different context than management…yours is one of 4,000 publicly traded companies…keep that in mind when talking about messaging and execution, the story…stands out.”

What I am understanding- the author thinks Alteryx is going to suffer worse growth rates this year than what people think because they are not expected to sign new business and will miss the big up-front revenue recognition they can recognize in the first quarter of a signed deal. And the author thinks investors either don’t understand this or are disregarding this due to the “story” of analytics and TAM that Dean Stoecker is presenting. Am I missing something? Thank you all,

AC Doyle
(long AYX)

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ARR grew approx. 50% annually over the last two years. ARR is independent of revenue recognition method. They are currently valued at approx. 20 times trailing ARR, which is not expensive considering the strong growth.

I don’t pay too much attention to the actual revenue growth in Alteryx’ case. A small acceleration in ARR growth will lead to disproportional revenue growth acceleration (see q4 last year) whereas a small slowdown willl lead to disproportional deceleration (see q2 guidance). I am therefore frustrated that Alteryx doesn’t consistently report ARR and hope this will change in the future as this is the key metric to assess Alteryx performance.

I also disagree with the article that the 12.5% growth commands a 40% lower multiple. This would only be true if Alteryx recognized revenue fully ratable like most other SaaS companies.

Other question: Does anyone know why Alteryx recognizes approx. 35% upfront? There must be a rationale…

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I usually lurk on this board as the knowledge in these companies surpasses mine. But I have invested in stocks for a long time. But some of this shortsighted articles I have read lately is silly to me. First to think that the investors in AYX are missing some things(I did read the article and seemed to imply it at least) seems arrogant to me. The market is inefficient for sure but one should never completely dismiss relative strength of stock. The market is mostly discounting this period. And anyway the “market” looks forward taking into account CAP, size of market, market penetration and such.

Now I may definitely be wrong on AYX, but looking at their recent history, their recent CC, and metrics such as gross margins!!, I find it hard to be bearish. Matter of fact as it stands now AYX seems to be top of the SaaS pile.

Eric

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